Stop Flying Blind - A book by Michael Mace

3. The Fall of Competitive Intelligence

In the next few weeks, we’ll go into depth on competitive analysis – what it is today, and what it should become.

Once upon a time, back in the 1990s, competitive intelligence was a hot area at many companies. They invested heavily in creating competitive intelligence teams. A professional group called the Society of Competitive Intelligence Professionals claimed that CI was the fastest-growing corporate discipline. SCIP had more than 3,000 members in 1996, and was growing by more than 100 new people a month.1 Competitive intelligence consulting firms did big business, and if you visit any good research library you’ll find whole shelves of books about Competitive Intelligence, most of them written in the 1990s.

But when the Internet bubble burst and companies started cutting costs, many of those competitive intelligence groups were wiped out.

“CI units are being eliminated….At least half of the CI functions in place today have suffered significant cutbacks, or will face them within the next six months.”

That was from the SCIP’s own newsletter in 2003.2 One of the leading promoters of competitive intelligence in its heyday is now writing about how to apply the Talmud to business decisions.

Why the retreat? Conditions vary from company to company, but I think there are five main reasons:

1. The case for CI was grounded in fear. Much of the urgency behind creating the function was driven by fear of foreign companies, which were said to practice Competitive Intelligence aggressively. Japan in particular was described as a hotbed of competitive spying, and it was implied that this played a key role in Japan’s economic rise. The rhetoric was frightening, and it seemed likely that any company failing to create a competitive intelligence unit was doomed to fall to foreign conquerors.

But as the perceived Japanese “threat” to American business receded, so did interest in Japanese business practices (when’s the last time you heard someone quote from the Book of Five Rings?).

2. The role was never completely defined. CI was a very new discipline, and there hadn’t been time for a consensus to develop on exactly what the role was and how to organize it. As a result, different books and consultants gave conflicting advice. In the lack of clear expectations, I think many competitive intelligence groups were never given well-defined charters. When a company’s under financial stress, a poorly defined function is an obvious thing to cut.

Inevitably, some of the advice was also damaging. For example, one prominent book said the CI role is like being a court jester for your company. The idea was that the CEO resembles Shakespeare’s King Lear, surrounded by liars and flatterers. The jester is the guy in tights who tells the king the truth, by mocking the egotists and exposing the liars.

It’s true that someone in a competitive role must be unafraid to say exactly what the data indicates, even if it’ll upset people. But beyond that I’m uncomfortable with the jester analogy because it implies a completely negative role, and one that focuses only on influencing the CEO. In most of the companies I’ve known, to make change work you need to influence the whole management team, not to mention the rank and file employees. You can’t do that if you speak only to the CEO, and besides you won’t win much respect from the organization if all you do is point out the flaws in other people’s work. When the CEO is replaced (which happens a lot more often than the death of a king), it’s likely that the one agreement among all the remaining executives will be that they want to strangle the jester.

Which, I believe, is what happened at the end of King Lear.

If you need an analogy for the competitive role, it’s better to think of the scout for a wagon train, forging ahead in the wilderness to identify dangers and find the easiest path for everyone. The scout’s not the manager of the wagon train, but he’s a leader with a unique and valued role. And he never wears tights.

3. The focus was on intelligence, not analysis. Much of the CI literature focused on how to gather and verify facts about the competition’s activities. It’s right there in the name — the function collects intelligence on what the other guys are up to. You can find entire books just listing various intelligence-gathering techniques, down to obscure things like taking the competition’s factory tour with two-sided tape on your shoes, so you can collect microscopic samples of the materials they’re using.

The problem is that basic intelligence collection is becoming less important as the Internet grows and people change jobs more often. The Web is awash with competitive rumors, and chances are that if you can’t find the information you need online, one of your former coworkers is now working for the competitor and will sing like a canary if you buy them lunch. There’s simply less need in most companies for full-time employees who ferret out tidbits of intelligence.


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What companies do need is insight on what the flood of information means — how it adds up, and what it says about the competition’s thinking and future behavior. This is why I prefer the term “competitive analysis” rather than competitive intelligence. But that sort of predictive analysis is a very different discipline than collecting data, and it works best when competitive analysis is teamed with market research and advanced technology research. So competitive analysis isn’t very valuable as a standalone function.

4. The wrong people were hired for the function. This probably relates back to the lack of a clear charter for the CI role. When you’re not sure what a function will do, it’s easy to imagine that anyone can do it. Many of the people I’ve seen working in the field were marketing or sales people who had been dropped into the competitive role without much preparation, or much inclination for the work. They floundered around trying to figure out what to do, and produced very superficial reports.

Because of the flood of how-to books on Competitive Intelligence, I think some people formed the impression that anyone could do CI if they followed a few simple practices. That’s a little odd; I don’t know of any other field in business where the expectation is that anyone can be good at it. You don’t try to turn randomly-selected employees into engineers, or PR specialists, or salespeople. You look for people who have talent in that area. The same is true for competitive analysts. It’s a specialized field, and not everyone can do it well.

In a future chapter I’ll give some guidelines on how to identify a good competitive analyst.

5. Competitive Intelligence is not mission-critical in the short term. A company has to have salespeople or no one eats. You have to have engineers or products just don’t get built. But if you don’t have a competitive team…well, the company keeps going just fine, thank you. At least for a while.

This means that, in practice, a competitive team has to be more than competent in order to survive. It has to be superb, delivering great value to the company in a visible way, so no one would think of living without it. Just being a service group, delivering good information to clients in the company, is not enough. The group has to solve serious business problems and help close sales. Rather than being a source of competitive information, the group needs to be a source of competitive leadership.

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Late one evening in 1989, I entered one of Apple Computer’s office buildings in Silicon Valley. Although Apple called its headquarters a “campus,” it was actually a series of buildings sandwiched between homes and stores over several square miles. The company had rented them haphazardly as it grew.

The building I went to was inconspicuous, two stories tall and tucked behind a screen of trees. It wasn’t the usual place for executive meetings, but an important meeting had been held there earlier in the day.

It was after sunset when I entered the building, and the place was very quiet. The building didn’t house a lot of engineers, so most of the employees had gone home. I went to a darkened conference room, where an IBM personal computer stood in one corner. It was a PS/2 Model 80, a hulking floor-based tower that was the leading edge of PCs at the time. After checking to make sure no one was nearby, I turned on the computer and watched it start up.

It launched a pre-release copy of Microsoft Windows version 3.0. I saw the software come up on the screen, played with it for a couple of minutes, and immediately knew Apple was in deep trouble.

To understand why, you had to know the history of Microsoft up to that time. This was back in the days when PC companies like Apple, Microsoft, Lotus, and Word Perfect viewed one another as peers. The dominant behemoth was IBM, and we were all dancing around them. Microsoft was the clever operating system company that had ridden the IBM standard to prominence, but no one really respected its ability to innovate in applications. Its efforts there were a joke — Microsoft Word was something like the #6 word processor on the PC, and even Microsoft’s software for the Macintosh had numerous competitors, many of which were viewed as technically superior to Microsoft’s products.

Microsoft Windows was the biggest joke of all. Its first two versions had been crude, extremely hard to use, and didn’t excite anyone. In some ways, they probably helped Apple by validating the idea of a graphical interface for a computer, without providing one that was good enough to steal away many customers.

Windows 3.0 changed that. It looked nice. The graphics were pleasant, the icons were reasonably well laid out on the screen, and it worked fairly well. There were still some rough edges, but it was good enough that I could picture a PC user installing it and not being embarrassed a week later. Windows was, for the first time, usable.

For reasons I still don’t know, Microsoft had decided to come down and give a demo of the unreleased software to Apple’s executives. I was managing the company’s competitive analysis department at the time, and as the only people in the company who had IBM PCs, we were asked to provide one for the meeting.

I wasn’t invited to the meeting, for obvious reasons, but I stayed late that night until I was sure it was over. As it turned out, when the Microsoft people left the meeting, they hadn’t erased the software from the PC. Now it was mine. I lifted the very heavy PS/2 tower onto a wheeled chair and rolled it out to my car. We started testing the software the next morning, trying to learn as quickly as we could just in case Microsoft came back and asked us to wipe the hard drive.

They never did.

With a pre-release version of Microsoft’s new product in hand, we were in a good position to prepare Apple for the upcoming competition. And in many ways we did — we documented our competitive advantages, educated the engineers about the improving competition, created marketing collateral, and generally tried to prepare the company for a fight. But the preparation turned out to be harder than I expected, in part because of resistance from above.

Spreading bad news about a competitor can be very disruptive to a company. It distracts employees, causes people to question their current plans, and generally hurts efficiency. The news is especially hard to deliver when a competitor has a history of screwing up, and most of the people in the company don’t use the competitor’s products. It’s seductively easy to rationalize that the competition is going to blow it one more time.

Sure enough, soon after we started raising a red flag about the software, my boss called me into his office. He said we were upsetting too many people, and told me to tone down the message. “After all,” he said, “it’s just another version of Windows.”

Maybe Apple was destined to lose anyway. Apple’s refusal to license its software to other companies meant it couldn’t establish a competing software standard, and its failure to produce new innovations that would make Windows obsolete meant it couldn’t hold onto many of the customers it had. But I think another cause of Apple’s fate was its inability to picture how the world would change. Apple didn’t really understand the minds of PC customers, and couldn’t see how Microsoft’s new software would act on them. And so despite a free preview from Microsoft, Apple never fully rose to the challenge of Windows 3.0, and Microsoft went on to cement its dominance of the PC industry.

By the traditional rules of competitive intelligence, I ought to feel at peace with my role in this. I did everything I could do legally to get advance information, my team and I turned out the best analysis we could, and we reported it as aggressively as we were allowed to. But I think that’s a cop-out. My company screwed up on a competitive issue. Therefore I’m partly to blame.

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My experience with Windows taught me the most important rule of competitive analysis — your role is to make sure your company wins competitively. It’s not enough to deliver a great report and then wash your hands of the situation. If the company doesn’t act on your information, you failed.

You need to drive this principle into everything a competitive group does.

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Next week: How to organize a competitive analysis team.


  1. For a complete discussion, see the book Competitive Intelligence by Larry Kahaner. [↩ back]
  2. Written by Bill Fiora, principal of Outward Insights, a CI consulting firm. [↩ back]

4 Responses to “3. The Fall of Competitive Intelligence”

  1. Lefty (the Great and Terrible) said on April 29th, 2006 at 7:09 am

    I like this stuff, Mike, should be an interesting book. It occurs to me that “Competititive Intelligence” is another instance of my “Taoist Theory of Management”: “Find a good parade and get in front of it.”

    Also, it’s a truism in military intelligence that you never get credit for the successes (i.e. the problems that don’t happen because your intelligence forewarned you about them), but you always get the blame for the failures. I wonder whether this is true in competitive intelligence as well…

  2. Lefty (the Great and Terrible) said on April 29th, 2006 at 7:12 am

    (By the way, I have dibs on the titles “Everything I Know About Business I Learned From Genghis Khan” and “All I Really Need to Know I Learned From Watching Horror Movies”.)

  3. Mike Mace said on April 29th, 2006 at 9:30 am

    Dang, Lefty, both of those are better than the title of my book!

    >>it’s a truism in military intelligence that you never get credit for the successes…but you always get the blame for the failures. I wonder whether this is true in competitive intelligence as well

    A little bit, although in an unsuccessful company things are usually so screwed up internally that everyone shares the responsibility to some extent, and everyone can fairly credibly blame everyone else (see the Enron trials for an example).

    Also, military failures are usualy immediate and extremely visible. Business failures tend to be slower-motion and it’s hard to trace back exactly where things went wrong.

    Isn’t it interesting how easily we all (myself included) fall into military metaphors and analogies when talking about this stuff? I don’t know if this says something about the nature of business, or about how our brains are wired…

  4. Bill Fiora said on August 28th, 2008 at 9:25 am

    Mike:

    Good stuff. (I’m glad that someone read what I wrote back in ’03.) Two comments:

    1) I’m happy to say that our current economic downturn has not hit CI as hard as it did when I wrote that article five years ago. On the contrary, I am seeing almost no cuts in established CI units now. In fact, in the past year or two, there has been a marked increase in the quality of CI jobs being created, and this trend continues through the downturn (as I have seen 2-3 great jobs in the last few months).

    2) CI is not dead, although all of your reasons you cited for its misuse are exactly right. In many companies, there is too much attention paid to information collection and not nearly enough paid to forward-looking analysis. And the wrong people were indeed hired in many instances. In a lot of companies, CI has withered away because it was done halfway and on the cheap. In the higher-quality job openings that I mentioned above, however, this is not the case. CI is being elevated to a strategic level and being staffed accordingly. (Sadly, only a handful of CI practitioners are qualified for these jobs, and many are being filled by former strategy consultants, and others with a more strategic view.)

    In the grand scheme of things, the number of companies that “get it” when it comes to doing CI correctly remains very small. On a positive note, however, I think this number is steadily increasing. While growth for CI will be slower than when it was the “latest hot trend” earlier in this decade, I think this type of growth is better for the profession, and definitely better for those companies who recognize the difference.

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